Cannabis Inventory Management Tips to Stay Compliant

May 13, 2020 Cannabis Business, Financial Strategy

Whether you’re stocking hundreds or thousands of cannabis products, cannabis inventory management is essential for success in the cannabis sector. Operating in this industry means you need to know where your inventory is, how much you have available, and when you’ll need to restock.

According to Wasp Barcode Technologies, 43 percent of small businesses in the United States either are not tracking their inventory, or track it with a manual system. While a manual system could work for some businesses, the cannabis sector’s strict regulations demand operators to eradicate any potential for human error.

Cannabusinesses must track their products on an individual basis to remain compliant. Supply chain issues also raise the need for cannabis inventory management.

In this article, we discuss several actionable tips and strategies to simplify processes, automate inventory management, and take precautionary measures that promote successful inventory management in the cannabis sector.

1. Use FIFO (First In, First Out) for Inventory Accounting

The FIFO inventory management principle is the industry standard in food production safety. However, this principle will also ensure you sell cannabis products in the order they’re received. 

Cannabis products must be sold long before they expire. Keeping expired stock on the shelves could compromise the safety of your products, and this can result in dissatisfied customers and a compliance infraction.

With this method in place, cannabis business operators avoid stocking or selling stale or expired products. Here are the five steps for using FIFO:

  1. Find products that have the earliest use-by, expiration, or best before dates.
  2. Discard products damaged or past their expiration dates.
  3. Stock your oldest (but still good) items at the front of your shelves.
  4. Put your newer stock behind the older stock, with the most recent dates at the back of your shelves.
  5. Sell the oldest items from the front of your shelves first.

These steps will ensure you sell your products before they expire by encouraging you to prioritize selling the products expiring soonest.

2. Use an Inventory Management Software

Inventory compliance in cannabis is crucial, and when you have Point of Sale (POS) and inventory management software in place, you’re handling inventory management like a professional.

Between the projections, reconciliations, and regular inventory audits a cannabis POS system facilitates, these systems are essential for every cannabis business operator that handles inventory. However, the right inventory management software will integrate with the government’s reporting system and make automated compliance reporting simple.

An inventory management system also reduces human error. The data-related features such as automated product equivalency, purchase limit calculations, product recall management, and batch tracking encourage data-backed decisions that increase your efficiency and help you avoid compliance infractions.

3. Analyze Data You Gather from Your Customers

Improve upon your inventory management by analyzing the data your customers generate. As you manage your inventory and gather data, you can make your business more effective and respond to your customers’ demands.

With the right data, you’ll understand what your customers want, how much you should order, and what margins will encourage your business’s growth. By effectively using this data to streamline your inventory management processes, you’re also positioning your business to make the most of any opportunities you uncover during your operations.

Overstocking is a problem. However, you also need to store enough inventory to provide your customers with products, regardless of whether you’re experiencing a peak in sales.

Your software should generate inventory and sales reports to ensure you know how much product you should have on-hand at any given time. This results in your business running as efficiently as possible.

4. Standardize Your Process for In-house Inventory Audits

While your software will provide accurate reporting for compliance, you’ll still need to standardize your in-house inventory audit process. This information will help your business recover lost sales, make better ordering decisions, and catch internal thefts and frauds with ease.

Inventory-related compliance infractions can result in a full state audit. By establishing your SOPs for in-house inventory audits and performing a full audit of all inventory weekly, you’ll increase your chance of dodging a state audit.

Some cannabusiness operators use cycle counting to audit their entire inventory each month. This is easier than counting all inventory at once, and it’s just as effective. To complete accurate inventory counts by cycle counting, you’ll count portions of your inventory at scheduled intervals throughout the month until you’ve analyzed your entire stock.

Daily inventory reports are also ideal. While it’s challenging to maintain inventory audits, conducting a minimum of an audit per week is an excellent way to reduce fraud and theft. Just make sure the person counting your inventory is not also handling your cash.

5. Prevent Employee Theft

While you’ll need to show your business is secure for your application, it’s also important to consider how much product you’re handling each month. Simply put, it’s easy for products to go ‘missing’ when there’s so much temptation for dishonesty.

According to the Marijuana Retail Report, “up to 90% of losses reported by dispensaries are due to employee theft.” This is why incorporating strict protocols to secure your inventory is so crucial.

These are some of the best options available to keep cannabis inventory secure:

  1. Conduct thorough background checks during the hiring process.
  2. Create limited access areas for inventory stock.
  3. Require employee identification to get into and out of these limited access areas.
  4. Keep a record of all staff coming in and out of inventory areas to prevent fraud.
  5. Use alarms, video surveillance, and lighting to discourage theft.
  6. Hire security to watch for inconsistencies in staff and customer behavior.

6. Properly and Securely Store Cannabis

Successfully managing cannabis inventory involves organization. This is why some cannabis business operators hire an inventory manager responsible for inventory maintenance.

Your inventory storage space should not be full of clutter. Instead, it should be well-organized and ready to pass an inspection at any time.

Store your products appropriately to ensure they last. This can mean air-tight containers for extracts and flower, refrigeration for perishable edibles, and temperature-controlled climates to keep all products as fresh as possible.

The inventory storage space should also be secure. Use your state’s regulations to guide you as you secure your inventory. While this will keep your business compliant, you’ll also effectively protect your inventory from unexpected discrepancies.


Are you concerned that your inventory SOPs aren’t contributing to your business’s effectiveness? For recommendations regarding inventory management, software, and compliance, contact us today!